PILOT AgreementS

Payments in Lieu of Taxes

What is a Pilot? 
A PILOT (Payment in Lieu of Taxes) is a financial agreement between the Township and a developer.  Instead of paying traditional property taxes for a set period of time, the property owner makes set negotiated annual PILOT payments to the Township. They are authorized by New Jersey's Long-Term Tax Exemption Law, N.J.S.A. 40A:20-1 et seq. which was created to help NJ municipalities improve their ratable base and redevelop properties that meet the standard for Areas in need of redevelopment (N.J.S.A. 40A:12A-6), Urban enterprise zones (N.J.S.A. 40A:12A-5(g)), Affordable housing projects (N.J.S.A. 40A:20-4), and Relocation housing project (N.J.S.A. 40A:20-4t).

They can be a useful tool to bring new investment to a municipality and yield benefits to current and future residents. In lieu of paying property taxes on the improvements created by the project, the redeveloper makes annual service charges known as “payments in lieu of taxes” or “PILOTs” which are based on a percentage of annual rental income generated from the project. As rental income increases, the payments made to the municipality increase.

Why would Ewing approve a PILOT?
PILOTS help make redevelopment projects financially feasible, bring new investments, housing, businesses, jobs and tax revenue to our community. They incentivize a redeveloper to undertake and complete specific projects.  This can range from fulfilling a municipality’s affordable housing requirement, minimizing or changing the scope of the project from what could be approved, or helping to incentivize the revitalization of a property with environmental problems. PILOTs are used in conjunction with areas designated for redevelopment that are underutilized, dilapidated or otherwise meet the standard for an Area in Need of Redevelopment. The redeveloper must evidence that but for the tax abatement the project would not proceed as designed. Without the use of this tool, the project would not be economically feasible in its current form, yielding an inadequate rate of return.

The redeveloper also benefits by having predictable, stable payments over a long-term period. This stability is often necessary for the redeveloper to be able to obtain bank financing for the project. Ewing and many other communities have utilized PILOTs to avoid high-density Affordable Housing projects or to change the scope of a project to a more appealing use for the community.

Is every new development eligible for a PILOT?
No. PILOTs are limited to projects in designated redevelopment areas and must meet New Jersey redevelopment law. Each agreement is considered individually and must be approved by Township Council after a public process.

Does a PILOT mean that a developer pays nothing?
No. Developers with a PILOT still make annual payments to the township. The amount and structure of those payments are established in the financial agreement.

Where does the money go?
PILOT payments are made directly to the Township. State law generally allows municipalities to retain most of these payments to fund local services like police, fire, public works, parks, and other operations.  

How do PILOT payments work?

• Traditional property taxes are split among the municipality and county.
• Under a PILOT, the municipality retains a much larger share (generally 95%) of the revenue, with the remaining portion going to the county. School districts do not receive direct PILOT revenue.
• These funds are often used to support local services, infrastructure improvements, and community needs.

How is a PILOT different from the taxes I pay on my property?
Taxes on traditionally taxed properties are based on an assessment of what that property is worth today and can vary widely from year to year depending upon that assessment and the current tax rate. Payments under a PILOT are designed to be stable over time. Generally, PILOTs are based on a percentage of the cost of the project, or more commonly 10 to 15% of the project’s annual gross revenue. By basing the PILOT payments on the project’s revenues, the Township shares in the success of the project as rents increase over time.

What happens if we do not offer PILOTs?
There will be projects that cannot achieve financial feasibility and as a result tax revenue will continue to decline because the existing uses are continually losing value. Utilizing this tool to create negotiating leverage to attract new developments, and to help offset the tax burden of our residential taxpayers is becoming a more essential option. In this market, redevelopers may not be able secure financing for large-scale projects without PILOTs, forcing marketable properties vacant and deteriorating.

What are the benefits and considerations?

• Benefits: PILOTs can spur redevelopment, improve property values, and generate long-term revenue growth.

Who decides whether a PILOT is approved?
 All PILOT agreements are negotiated by the Township Administration and must be approved by the Township Council through a public ordinance, in compliance with state law. Each agreement is subject to financial analysis and public approval to ensure accountability and fairness.  Residents can review proposed agreements and participate in public meetings before final approval.

Why are PILOTs sometimes controversial?
Reasonable people can disagree about whether a particular project should receive a PILOT. Supporters believe they spur investment and economic growth.  Critics question whether a project truly needs the incentive or whether traditional property taxation would generate more revenue over time.  Each project should be evaluated on its own merits.

Common Misconceptions about PILOT Agreements

• PILOT = No Taxes
• The Municipality receives less money than it would under conventional taxes
• The cost of additional services exceeds the revenue from the PILOT
• PILOTs cause an increase in property taxes for existing residents
• The schools won’t receive their full budget

HOW TO LEARN MORE...
Residents interested in a specific redevelopment project or financial agreement are encouraged to attend Township Council meetings or contact the Township Administration with questions.